When starting a business in the UK, selecting the right company structure is important as it impacts operations, fundraising, and control. Limited companies offering limited liability protection to safeguard personal assets are a popular choice. The two main types are private limited companies (Ltd) and public limited companies (PLC). Understanding the differences between these structures is key to choosing the best fit for your business. This article will explain the features, advantages, and disadvantages of Ltd and PLC companies to help you decide which one aligns with your business goals.
What is a Private Limited Company (Ltd)?
A Private Limited Company (Ltd) is a business structure where the ownership is divided into shares. These shares are privately held and cannot be sold on the stock exchange. The company is owned by a small group of investors, often the founders, family members, or close business associates. The main advantage of a Ltd is that it limits the liability of the shareholders to the amount they have invested in the company. If the business faces financial trouble or goes bankrupt, the shareholder’s personal assets are protected. In a Ltd, the directors are responsible for the management of the business, and the company must be registered with Companies House. Unlike public companies, a Ltd does not have to meet strict regulations and public disclosure requirements, making it a more flexible and private option for smaller businesses. Learn more in our article on Top 12 Benefits of Registering a Private Limited Company in the UK.
What is a Public Limited Company (PLC)?
A Public Limited Company (PLC) is a type of business whose shares can be bought and sold on the stock exchange, allowing public investors to own a stake in the company. PLCs are typically larger companies that seek to raise substantial capital by offering shares to the public.
PLCs provide limited liability protection to their shareholders, similar to private limited companies (Ltds). But they face more regulations and legal requirements, as they must comply with more rigorous reporting and auditing standards. A PLC must also meet a minimum share capital requirement of £50,000, with at least 25% of that amount paid up before it can start trading publicly.
Key Differences Between Private and Public Limited Companies
Key differences between private and public limited companies (Ltd and PLC) include ownership, regulations, capital requirements, privacy, and setup costs. Knowing these differences helps business owners choose the right structure for their goals.
Ownership and Shares
- Private Limited Companies (Ltd): Shares can only be sold privately and are typically held by a small group of people. These shares are not available to the general public, and there is a limit on the number of shareholders, usually up to 50.
- Public Limited Companies (PLC): Shares are freely traded on the stock market, which allows the company to raise large amounts of capital by selling shares to the public. There are no limits on the number of shareholders.
Regulations
- Private Limited Companies (Ltd): Ltds are subject to fewer regulatory requirements compared to PLCs. While they must file annual accounts with Companies House and maintain financial records, they are not required to meet the same detailed reporting or auditing standards as PLCs.
- Public Limited Companies (PLC): PLCs face stricter regulations, including regular financial reporting, independent audits, and more detailed disclosures about their operations. PLCs must also hold an annual general meeting (AGM) and comply with corporate governance rules.
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Capital
- Private Limited Companies (Ltd): There is no minimum capital requirement for starting an Ltd, making it an easier and cheaper option to set up. Share capital can be as low as £1.
- Public Limited Companies (PLC): A PLC must have a minimum share capital of £50,000, with at least 25% paid up before it can start trading. This makes it more expensive and complex to establish.
Privacy
- Private Limited Companies (Ltd): Ltd companies have more privacy. While they are required to file certain information with Companies House, such as financial statements and details of directors, they do not have to disclose the same level of detail as PLCs.
- Public Limited Companies (PLC): PLCs must disclose extensive information, including detailed financial statements and executive compensation. This information is available to the public and is subject to scrutiny by investors, regulators, and the media.
Setup Costs and Requirements
- Private Limited Companies (Ltd): The process of setting up a Ltd is straightforward, quick, and affordable. It can be registered with Companies House for a relatively low cost, often within a day.
- Public Limited Companies (PLC): Setting up a PLC is more complicated and expensive. The company must meet the minimum share capital requirements and provide detailed information to Companies House before it can start trading. PLCs also need to obtain a trading certificate from Companies House before they can publicly offer shares.
Advantages and Disadvantages of Private and Public Limited Companies
The advantages and disadvantages of private and public limited companies (Ltd and PLC) depend on factors like control, funding, and regulations. Here’s a quick overview:
Private Limited Company (Ltd)
Advantages | Disadvantages |
Limited liability protection for owners. | Limited ability to raise capital. |
More control and privacy for owners. | Restricted to private sales of shares. |
Fewer regulatory requirements and disclosures. | Limited shareholder base (up to 50 shareholders). |
Quicker and cheaper to set up. | May be harder to attract investment compared to PLC. |
Flexible management structure. | Less visibility in the market. |
Public Limited Company (PLC)
Advantages | Disadvantages |
Ability to raise large amounts of capital. | More complex and expensive to set up. |
Shares are freely traded on the stock exchange. | Greater regulatory and reporting requirements. |
Greater visibility and prestige. | Must disclose financial information publicly. |
Can offer shares as employee incentives. | More shareholders and potential loss of control. |
Easier to attract institutional investors. | Stricter corporate governance standards. |
How to Decide Which Structure Suits Your Business
Choosing between a Ltd and a PLC depends on several factors related to your business goals and current circumstances.
Factors to Consider
- Business Size and Stage: If you are a small business or startup, a Ltd structure is likely the better choice. It offers more flexibility, lower costs, and less regulatory burden. If your business is larger or if you plan to expand significantly, a PLC could provide the capital and visibility needed for growth.
- Capital Needs: If you need to raise large sums of money for expansion or projects, a PLC may be the better option since it allows you to sell shares on the stock exchange. If you have smaller capital needs, a Ltd company might be more suitable.
- Control: If retaining full control of your company is important to you, a Ltd offers more privacy and less external interference from shareholders. A PLC has a wider ownership base and less control over the original founders.
- Long-Term Plans: Consider your long-term goals. If you want to list your company on the stock exchange in the future, starting as a PLC might be a good idea. If your business will remain privately held and does not require public investment, a Ltd structure might work better.
Tax and Compliance Rules for UK Limited Companies
Both Ltds and PLCs are subject to UK company tax rules. They must pay corporation tax on profits and file annual accounts with Companies House. However, PLCs may face higher compliance costs due to their reporting obligations.
The role of shareholders differs between Ltds and PLCs. In a Ltd, shareholders have more control over the company’s direction, while in a PLC, there are more regulations and corporate governance standards that guide the relationship between shareholders and directors.
Conclusion
Choosing between a Private Limited Company (Ltd) and a Public Limited Company (PLC) depends on your business size, goals, and growth plans. Ltds offer simplicity, privacy, and control, making them ideal for smaller businesses. PLCs are better for larger businesses needing capital and a public profile. Consider your funding needs, desired control, and regulatory preferences before deciding. If you’re unsure about which structure is best for your business, seek professional advice.
For more guidance and a free consultation, contact our expert team at Cartwheel International today. We’re here to help you choose the right company structure and ensure your business is set up for success.
